Circle Accused by New York and Wisconsin Prosecutors of Hindering USDC Recovery for Scam Victims

Stablecoin issuer Circle is facing scrutiny from prosecutors in Wisconsin and New York for allegedly delaying or refusing to comply with court orders to return stolen digital assets to scam victims.

Key Takeaways

• Wisconsin charged Circle over a warrant to seize 381,000 USDC stolen in a crypto romance scam.
• Circle holds 119 million frozen tokens, with critics noting it earns interest on backing reserves.
• Circle reached a federal deal to permanently freeze flagged USDC and issue new tokens to victims.

State Prosecutors Clash With Stablecoin Giant

The USDC stablecoin issuer, Circle, faces mounting criticism from prosecutors in Wisconsin and New York who say the company has declined or delayed complying with court orders aimed at recovering funds.

According to an ICIJ report, Thomas Binger, a prosecutor in Walworth County, Wisconsin, has filed a misdemeanor criminal complaint accusing Circle of refusing to comply with a December warrant. The warrant ordered the company to “facilitate the seizure” of roughly 381,000 USDC stolen from a victim of a romance-investment scam.

The warrant reportedly directed Circle to invalidate the frozen tokens sitting in a suspect’s digital wallet and issue an equivalent amount of new USDC to a wallet controlled by the local sheriff’s office. Circle froze the funds immediately when ordered last August but later said it lacked the technical ability to burn and reissue tokens.

The allegations add to a growing list of concerns raised about Circle in recent months. As previously reported by Bitcoin.com News, prominent blockchain investigator ZachXBT accused the company of compliance lapses tied to more than $420 million in illicit USDC flows that Circle allegedly failed to freeze across 15 documented cases dating back to 2022. Circle also faced criticism for reportedly not freezing stolen USDC linked to the Drift Protocol exploit, further fueling questions about the firm’s responsiveness to on‑chain crime.

However, in response to the latest allegations, Circle maintains that it freezes assets only when compelled through a “lawful process,” arguing this policy protects users from arbitrary or politically motivated interference. The company called the complaint “meritless,” arguing that prosecutors misunderstood its capabilities and failed to engage with alternative solutions.

In New York, prosecutors wrote a letter to U.S. senators in January accusing Circle of declining law enforcement freeze requests unless they are accompanied by a court order. They also accused the company of failing to return stolen stablecoins even after being ordered to do so by courts.

Some critics argue that Circle’s reluctance to act is driven by financial incentives. Frozen assets continue to generate interest from the reserves backing USDC. Blockchain researcher Yury Serov estimates the value of frozen USDC at a minimum of 119 million tokens.

Crypto-forensics experts say Circle could update its token governance code to support burning and reissuing, but Circle has not confirmed whether such an upgrade is planned.

Nevertheless, in a footnote to its Wisconsin filing, Circle reportedly revealed it had reached a general agreement with federal prosecutors on a new mechanism to compensate victims. Under this arrangement, flagged stablecoins could be permanently frozen, removing them from circulation. Circle would then mint new tokens of equal value and issue them to victims.

Functionally, this mirrors the burn-and-reissue process critics say Circle should already support. Circle did not say whether this mechanism could be applied to the Wisconsin case or whether the agreement is part of a binding settlement.